Cosy Seal Insulation Ltd (the Company) fitted
insulation for homeowners and sold the corresponding carbon
emission savings to energy companies. After fundamental changes to
government policy, leading to a downturn in the insulation sector,
the Company ran into financial difficulty. In a series of
transactions before the Company entered administration, it made
loan repayments to the director in the region of £500,000
(the Loan Repayments) and sold certain carbon
credits to its sister company (the CC Purchaser)
for £100,000 deferred consideration (the Deferred
The administrators challenged the Loan Repayments as preferences
and the Deferred Consideration Payment as a preference and a
transaction at an undervalue.
The Company was cash flow insolvent at the time of the Loan
Repayments and the Deferred Consideration Payment. Creditors were
either paid late, or not at all, due to a systemic lack of funds.
It was not merely a temporary lack of liquidity.
The director could not provide a cogent rationale for the Loan
Repayments. There was no pressure on the Company to repay its
director while other creditors, who were chasing the Company for
payment, went unpaid. Therefore, the only possible explanation was
that the director was influenced by a desire to prefer himself and
was ordered to repay the Loan Repayments.
The director could not provide a commercial justification for
the Deferred Consideration Payment. The CC Purchaser was in no
better position to sell the carbon credits and later sold
approximately half for approximately £700,000. The director
had been influenced by a desire to prefer the CC Purchaser and the
CC Purchaser was therefore ordered to repay the Deferred
Consideration Payment, as well as the profit on the subsequent
The case is a timely reminder of the law around reviewable
payments made in the period leading up to insolvency. Faced with
the prospect of an insolvency process, directors should attempt to
treat all creditors fairly and, where this is not possible, record
the commercial rationale for payments (particularly those which are
Witnesses can, in various circumstances, be subpoenaed by the Courts of overseas jurisdictions to attend to give evidence by way of depositions within that jurisdiction. So why not take that one step further and ask a foreign court to subpoena the witness to give evidence by live satellite video link to a Court in London? This would be the next best thing to having the witness present in Court. Indeed, the Commercial Court is increasingly amenable to evidence being given in this way (albeit on a
Gratuitous alienation is one of the most familiar parts of our law and yet relatively rarely seems to come to court. That may be because the law is so well understood that there is little left to debate...
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